As you can see from the information in handout 2, on January 1 Fred had $5,000 in a money market fund. However, even after that transfer he is still short $4,000 (line 27).

The next source of cash is borrowing, either in the form of operating funds or intermediate and long-term loans. As you probably remember, Fred plans to borrow $5,000 when purchasing that piece of machinery. After entering that amount on line 28, Fred has an ending cash balance of $1,000 (line 31), which is the beginning cash balance for the next year.

An answer sheet is provided for you to check your answers

However, the year can be divided into quarters, months, weeks, or even days. Each division provides a more detailed projection, but normally projected cash flow statements are done either quarterly or monthly. A quarterly statement is often sufficient for operations with fewer transactions during a year, such as a cash grain farm. A monthly cash flow statement may be useful for operations that have a greater number of transactions during a year, such as a dairy or a farrow-to-finish swine operation.

We will use that information to complete lines 1 through 35 of the projected cash flow statement. The transactions for the first and second quarters will be discussed in the following paragraphs. Then you should try to complete the last two quarters of the year on your own.

It is easier to transfer all of the information in handout 3 to the appropriate quarters of the projected cash flow statement before totaling any of the subsections. The following steps list the sequence of events, and Figure 2 provides the answers for the first quarter.

2. Fred Farmer expects to sell all the corn in inventory, 4,230 bushels, in July for $3.25 per bushel or approximately $13,750.

4. Produce 100 bushels of corn per acre during the upcoming year on 100 acres or 10,000 bushels of total production. 5,000 bushels are expected to be sold at harvest (October) for $2.50 per bushel or $12,500. The remaining 5,000 bushels will be stored.

5. Acreage production costs for the corn are expected to be $ for fertilizer, $ for seed and chemicals, and $ for machine operation and drying. All production expenses will probably be paid in April, except $2,000 for machine operation and drying, which will be paid in October.

6. Fred expects to purchase a piece of machinery on January 2 of the upcoming year that will cost $6,000; $5,000 will be borrowed and paid off in five annual payments of $1,000 each. The first payment is due in December of the upcoming year. The interest rate is 15 percent.

Now, let’s look at the items in handout 3, which payday loans Mountain City Tennessee provide additional information on the timing of those cash transactions listed in handout 2

7. Family living expenses will be about $16,000 during the upcoming year and will be spread evenly over the 4 quarters.

8. Fred has a machinery loan of $10,000 at 15 percent interest. The next annual payment of $5,000 plus interest is due in December of the upcoming year.

9. Fred also has a $100,000 real estate loan at 10 percent. The next annual payment of $5,000 plus interest is due in December of the upcoming year.

12. Mr. Farmer wants to always keep at least $1,000 in his checking account or cash balance, but no more than $5,000. Any excess funds will be placed in the money market fund in $1,000 increments.